Hi Sir,
Was wondering how tax on saving capital allowance is calculated for this answer. I was unable to figure it out after reading the CF statement. Would be grateful if you could provide this calculation in detail.
Thank you,
Alvin
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Question on Chapter 14 Example 1 NPV Answer
3y ago#1The machine costs 1.8m. CAs on a reducing balance basis are therefore in 000
1.8 x 0.25 = 0.45
(1.8 - 0.45) x 0.25 = 0.3375
(1.8 - 0.45 - 0.3375) x 0.25 = 0.2531 etc
Tax is saved on these at 25%, so 0.1125 ie 113, 0.084 ie 84, 0.063 is 63.
In the year the asses is sold a balancing allowance or charge is calculated by comparing the written down value of the asset to the sales proceeds. The tax cash flow effect is 25% of this amount.
Thank you sir!
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